Banks and NBFIs - 5 things to do before disbursement to ensure your business can recover its loans

My grandmother used to look me in the eye whenever I came to her with a catastrophe and say, "Trouble cannot trouble you without your co-operation!" Ouch! Years later, I can see the wisdom in her words. We can all do things to make it more difficult for trouble to find us. Or, if it does find us give it one heck of a fight!

Banks and non-bank financial institutions (NBFIs) can do these 5 things to put themselves in the best position to recover their funds BEFORE disbursing a single pesewa (or $/￡/￥):

1. Research the borrower: Ensure you know the borrower's residential and/or business addresses, their postal address, the names of their directors and most importantly, where their assets are. If possible, find out which banks the borrower holds accounts with and whether they own any assets you can rely on in case of a default. Be sure that if you end up in court, your customer cannot pull a disappearing act!
2. Take security: If possible, secure you loan with collateral of the same or higher value. Security can be in the form of land, vehicles, buildings, company shares, insurance proceeds etc. Be creative and have a lawyer review the loan agreement.
3. Register your security with the Collateral Registry: Registering security gives you more options for quick enforcement if a borrower defaults on the loan. For example, a creditor has the option of enforcing their security without going to court.
4. Monitor your security: Regularly monitoring security ensures it is still there when you need it! There is nothing worse than going through the process of taking and registering collateral only to find out its value has depreciated to the extent that it is worthless to you, or that it is no longer there. Always make sure the value of your security remains higher than the debt until the debt is repaid.
5. Documents: Good document management practices save businesses from heartache. Document everything along the scenic drive along the contract to court highway. Leave a paper trail of all agreements and any amendments between your business and the borrower. Follow-up all telephone calls with written correspondence, no matter how brief. Print emails and put them on file so they do not end up lost when an employee moves on from your company. I cannot tell you the number of times borrowers have forgotten admitting their indebtedness in long-buried correspondence. Being prepared is half the battle.

I hope my grandmother's advice is helpful.

Do you have any other tips or experiences with debt recovery? Let me know in the comments.